The NFT market is no stranger to controversy and ridicule, but it has recently been rocked by a new development after a bullish 2021. NFTs have great potential stemming from tokenization, but certain obstacles must be overcome before the market truly recovers. In 2022, data from NFT analytics tracker Nansen shows great apathy from investors, leading to a malaise of underwhelming projects.

Degen art

Degen (degenerative) art is an emerging type of digital artwork created by digital artists who are often anonymous. It usually takes the form of ‘tokenized’ artwork created with a satirical or subversive edge. This type of art has caught the attention of traders in the NFT market due to its potential for high returns, but some risks with degen art have caused many to be wary.

One of the main risks is that degen art can often be created with malicious intent (such as the Frosties NFT collection), which has a high potential for fraud. A report from TRM Labs shows that in 2022 the NFT community lost $22 million to scams; much of which came from hackers accessing NFT Discords through the Mee6 bot to pose as moderators. As a result, the NFT market's credibility has been questioned.

Poor NFT project management

Unprofessional project management has led to creators of NFT projects running the risk of their project not delivering on its promises or taking too long to launch. Projects such as It’s nothing outright say their project is essentially worthless; in so doing they mock the NFT trader. This lack of professionalism can lead investors to question the legitimacy of the project and cause them to lose faith in its future potential.

Another more sinister issue in project management is rug pulling. This involves issuing tokens for sale with little or no transparency about how funds will be used. Then, when the token reaches its peak value, the creators “pull the rug” and unceremoniously dump their tokens, resulting in a sharp decrease in value. This can leave investors with worthless tokens and no recourse for recuperating their losses.

By contrast, successful NFT projects, such as y00ts, saw their price pop 170% on Solana after the collection’s rollout was completed in November. The project had hit a slump the previous month with prices falling 50%. Mature project management translates to market success.

NFT market gambling

With the surge in popularity of NFTs in 2021, investors have been keen to capitalize on potential profits. This has resulted in a trend of investors gambling on NFT projects, buying up large amounts of tokens to quickly flip them for a profit.

Speculative trading causes significant price volatility, increasing the risk of purchase for new buyers, and causing some projects to be abandoned due to a lack of value maintenance. This in turn has led to reduced investor confidence and stagnation in the development of new projects.

Furthermore, gambling on NFTs can lead to a decrease in liquidity in trading volume. When investors speculate on NFTs, they often hold onto their assets for extended periods to maximize profits. This can limit the number of active buyers and sellers on the market, leading to decreased liquidity and increased gas fees (transaction costs).

The future of NFTs

The future of the NFT market is bright, but it requires project owners to be accountable for their actions and make sure they are taking appropriate steps to protect investors. By doing so, creators will not only ensure the continued success of the market, but also restore trust in a sector that has been plagued by greed, incompetence, and even malice. 

The NFT market has come a long way in a short period, but there is still much work to be done to ensure it remains a safe and profitable investment for all involved. NFTs historically depreciate in value quickly; rarely do they retain a high price tag over an extended period. By ensuring project owners are transparent about their plans, properly managing their projects, and creating high-quality art, the NFT market can thrive once again.

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